Cluster-Based Industrial Development: KAIZEN Management for MSE Growth in Developing Countries

Citation

Eleanor Doyle (2015), "Cluster-Based Industrial Development: KAIZEN Management for MSE Growth in Developing Countries", Competitiveness Review, Vol. 25 No. 4, pp. 448-450. https://doi.org/10.1108/CR-04-2015-0028

Back in 1998, Sonobe and Otsuka began their investigations of the process through which industrial clusters develop with their interests firmly set on East Asian economies of Japan, Taiwan and China. As their interests in clustering developed, their geographical focus also turned to Vietnam, Bangladesh, Pakistan, Kenya, Ghana, Ethiopia and Tanzania, targeting labour-intensive products and processes generated mainly by micro and small enterprises (MSEs).

To date, their research has detailed 20 cases overall of clustering across Asia and Sub-Saharan Africa and enabled identification from their empirical research of the necessary conditions for successful clusters. Innovations of both a technological and managerial nature are identified as key, with importing of knowhow and learning from other locations playing pivotal roles. One such example was Korea as a source of knowledge in the case of a Bangladeshi garment cluster, with another important learning source identified as Italy for Ethiopia’s leather shoe cluster.

Beyond rather standard and “external” reasons for poor business outcomes, including poor infrastructure and unfavourable governance, this book, which considers six clusters in detail, digs deep into business practices that are considered ripe for training input to yield performance improvement.

In such contexts, the Japanese-style Kaizen management approach was identified as one route through which clustering could support broad industrial development built on practical, basic and yet substantial innovations in managing enterprises more efficiently and effectively. With the support of the World Bank and the Japan International Cooperation Agency, a series of pilot projects were organised in “stagnant” clusters where free management training was provided in all but one case (i.e. garment cluster in Addis Ababa) by local consultants, in local languages, and the current book reports on the experience and outcomes.

The introduction sets the contextual scene for low-income countries focusing on identifying industrial development strategies. The advantageous conditions potentially available through clustering are those outlined by Marshall (1920) and confirmed for the USA by the more recent work of Ellison et al. (2010). Linking such conditions to Kaizen, defined as a common-sense, low-cost approach to management targeting quality, cost and delivery improvements and work processes – also denoted as good housekeeping – is the experiment reported on in the chapters that follow.

The first part of the book focuses on Management, Innovations and Enterprise Growth builds on both less and more recent research by the authors as well as related research. Three cluster types are identified:

1. Survival clusters: Exhibiting low profitability.

2. Dynamic clusters: Exhibiting a relatively smaller number of larger enterprises as the least profitable exit or merge.

3. Jump-start clusters: Exhibiting substantial growth and gains from leapfrogging to substantially advanced production methods and management know-how imported from abroad.

Examples from the motorcycle industry in Japan, electrical fittings in China and garments in Bangladesh are used to relate the cluster types to specific cases, indicating the multifaceted innovations applied and their economic impacts. The discussion of the roles of management in Chapter 2 is reminiscent of Penrose’s (1959) distinction between managerial and entrepreneurial services and points to the requirement for not only basic management training but also for managers’ innovative capacity to be specifically supported, acknowledging the greater difficulties associated in identifying training appropriate for this purpose.

The second part of the book addresses Impacts of Management Training across six clusters (three in metalwork and three in garments) in five nations. From assessment of a metalwork cluster in Ghana (Chapter 4) and econometric analysis across a range of firms and a control group which did not engage in management training, results of the impact of management training was mixed with variations in entrepreneurial ability of managers and are identified as more problematic than up-skilling of workers. Business performance effects were positive and significant. Estimated impacts for a metalwork cluster in Nairobi, Kenya (Chapter 5), were positive and significant for value added and profits, and self-selection bias appeared as a significant factor for those managers who attended the training. A similar cluster in Addis Ababa, Ethiopia (Chapter 6), was provided with classroom and on-site training, and the results between the control and treated groups were statistically different for management practice scores – but not with respect to business performance. As Kaizen practices had previously been selected by the national government for broad dissemination, this could offer some explanation for that finding as could a small sample size and noisy data, also reported in related research. The chapters that follow provide detail on a further three similar cluster training programmes.

The third and final part of the book reports on the overall findings and generates recommendations to propose a Strategy for MSE Development. This section identifies managerial capacity of entrepreneurs as the central factor enabling, or hindering, enterprise growth, as it is causally related to the success, or otherwise, of the application of innovations. Ongoing persistent commitment of managers is identified as key to not only changing business practices but also maintaining such changes. Achieving such a fundamental change is argued as the primary means to bring about necessary adaptations in attitudes and behaviours in the workplace.

The authors consider that identification of those managers exhibiting a positive approach to ongoing improvements provides a useful screening mechanism for those managers with revealed potential for further more advanced management training. It is also argued that relative to financing of large infrastructural projects, for example, provision of support for such cluster-supporting training would not face the same likelihood for corruption. The emphasis of the authors’ proposals lies in the realm of human capital-led development rather than industrial policy, as the former address substantial but assailable barriers and market failures hindering real economic development.

The volume is written very accessibly and with sufficient clarity to attract readers with an interest in less-developed locations with judiciously conducted empirical research on the impact of management training, albeit the samples are quite limited and the contexts sometimes precarious.

Although many of the references more familiar to those with experience of Porter’s (1998) clustering work are absent here, the essential foundations in Marshall, etc. are common. Bridging clustering literature to the Kaizen approach works in this volume and indicates the potential of specific interventions around management improvement as one of a number of multifaceted innovations that can effectively support both business and professional development for MSEs, their owners and managers.